Microsoft presented the results for its second quarter of the 2010 fiscal year yesterday, which ended on December 29 2009. As it turns out, thanks to sales of Windows 7, Microsoft experienced a record quarter, which is especially welcome after the previous two lacklustre ones. It sold 60 million Windows 7 licenses during this record quarter.

There's no reason in the world why the most mass-produced piece of software on the entire planet should cost more than a processor or motherboard.

Hmm, what about the thousands of man years to write that code, and that once one has paid the $100 they will provide bug fixes and many new features for six to eight years at no additional cost?

"Mass-produc[tion]" in this instance is more or less asserting that the marginal cost is basically zero (which is true) but that for a rivalrous product such as a processor it is well above zero (also true).

However, these are fundamentally different products. In addition to R&D, each processor must be manufactured, and therefore there are real resources that it consumes which might have been put to some other use. Elements have to be mined (which could have made some other thing), factories have to be built (where the land and machinery could have been used for something else).

Another copy of software is just so many electrons flowing through wire that has already been laid. The entire cost is whatever it takes to get those electrons from point A to B, which isn't very high.

Taking that logic to the extreme--and there is some reason to do that, as prices do tend toward marginal costs with time--almost all modern services would collapse.

IE, the marginal cost to a cell phone provider of an additional wireless subscriber is nearly zero (as opposed to a regular telephone or cable, which have roughly static line costs). Same goes for satellite, all software, any online services, etc. All of these things, wireless, software, etc. have tremendous upfront development or infrastructure costs to create the product or service, followed by a marginal cost of almost zero on every consumer. That throws a wrench in traditional pricing mechanisms.

If customers insist that the price actually reaches the marginal cost, the services would all dry up, because they would have fundamentally no income.

So, yes, you hit on a tricky subject for pricing, but no, the price shouldn't fall just because it is so easy to mass-produce that it is essentially free to produce any number of copies.